Stock investors need to work harder to get a positive return from their invested cash as inflation soars. Consumer price inflation has just hit three-decade highs of 5.4%. The Bank of England (BoE) reckons it could peak at 7.25% in the spring too.
I’m not clenching my fists with worry however. This is because there are plenty of UK shares out there whose dividend yields sit above even these elevated levels of inflation. There are several on the FTSE 100 alone which I’m considering snapping up today.
One of these is financial services giant M&G (LSE: MNG).
Looking good
M&G was, up until recently, part of financial services giant Prudential. It was spun off in late 2019 as part of ‘The Pru’s’ plan to focus on fast-growing emerging markets in Asia. Don’t think for a second though that Prudential’s decision to separate from M&G is a reflection of the latter’s profits outlook. I strongly believe that M&G could help deliver huge shareholder returns over the long haul.
Savers have been getting a dreadful return from standard financial products since the 2008 financial crisis. The BoE kept rates at rock-bottom levels to help the economic recovery. As a consequence, people had to search around to get a decent return on their cash. This also meant that demand for the wealth management services that the likes of M&G provides soared.
The BoE is raising rates again. But, so far, this is yet to be reflected by a solid improvement in savings rates. I don’t expect things to improve much for savers either given that interest rates are predicted to remain well below their historical norms. Even Lloyds Bank’s most optimistic scenario suggests interest rates will remain below 1.8% through to 2024.
Rising above the pack
I wouldn’t just buy M&G because returns from traditional savings products should remain pretty poor. I believe the FTSE 100 firm’s expertise in providing financial products for retirees will also help it to generate big profits in the years ahead. Britain’s population is rapidly ageing — it’s estimated that one-in-six of us will be aged 65 or over by 2050 — leaving M&G and its peers with plenty of business to win.
Speaking of which, M&G will have to work extremely hard given the amount of competition it is up against. The financial services industry is cutthroat and signs of underperformance versus its peers could be extremely damaging. That said, I can take comfort from M&G’s solid track record when it comes to generating decent returns for its customers.
9% dividend yields!
Besides, at current prices, I think M&G’s share price looks mighty attractive when we’re talking about reward-to-risk. Today, the wealth manager trades on a forward P/E ratio of 10.3 times, roughly in line with the accepted value watermark of 10 times.
But it’s in the dividend arena where M&G really looks like a top buy. Its yield sits at a mighty 9% for 2022, well above the 3.5% FTSE 100 average. This is a share I’d buy today and expect to hold for many years.